EU agrees on ‘historic’ banking union ahead of summit

EU finance ministers on Wednesday agreed on a landmark deal to create a single body to regulate and shore up banks, which was hailed as the most ambitious project to integrate Europe’s economy since the adoption of the Euro as the common currency.

European leaders hope the new banking union will go a long way towards helping them avoid the kind of financial crises that have plagued the region in recent years. The agreement came just hours before a key summit of the EU’s 28 heads of state in Brussels.

“I believe this accord is historic,” French Finance Minister Pierre Moscovici told reporters, after the deal was announced. “It’s therefore a day that is definitely important for the European Union.”

Leaders have been quick to point out that financing for the new bank rescue agency will come from the bank themselves and their creditors – not the government and taxpayers.

Banks to foot the bill

At a related meeting earlier on Tuesday, eurozone ministers reached an initial agreement that says banks will have to provide 55 billion euros over 10 years to pay for shutting down or spinning off ailing financial institutions.

The accord foresees other rescue measures in case the 55 billion euro fund is not ready before a bailout is needed.

The fine points of the new banking union still must be thrashed out by the ministers and their governments, and a long list of proposals must then be adopted by the European Parliament to become law.

EU banking commissioner Michel Barnier told journalists Wednesday that he was confident the new rulebook and the new regulatory body “will be operational in 2015.”

However, some observers warned that even when the 55 billion euro pot is filled, it won’t be enough to deal with a severe banking crisis, like the 2007-8 one, that led to bailouts requiring hundreds of billions of euros.